MercoPress. South Atlantic News Agency

ECB rates unchanged at 4% but September hike is forecasted

The European Central Bank (ECB) left Eurozone interest rates on hold at 4% for the second month in a row. The Thursday decision however also anticipated that the ECB will be hiking rates next September or October

"Strong vigilance'' is needed to ensure inflation risks don't materialize, said ECB president Jean Claude Trichet at an impromptu press briefing in Frankfurt, language he's used to signal each of the bank's eight rate increases since late 2005. "Rising oil prices, emerging capacity constraints and the potential for stronger wage dynamics imply upside risks to price stability'' he underlined. ECB has raised its benchmark rate to a six-year high to contain inflation pressures across the 13-nation economy. Trichet added that "we are experiencing a period of market nervousness, a period where we see volatility in markets in general and re-appreciation of risks. We think that these developments in financial markets deserve attention. Shifts in market sentiment need careful monitoring. We will continue to pay great attention to the developments in the market over the period to come". For now, the Euro region is enjoying "sustained economic growth" said Trichet. The jobless rate stayed at 6.9% in June, the lowest since records began in 1993, and ECB council member Nicholas Garganas says the central bank may raise its 2007 economic growth forecast next month. While inflation has held below the ECB's 2% ceiling for 11 straight months, the bank expects acceleration beyond its comfort zone later this year. Oil prices have surged over 50% since mid-January and falling unemployment has prompted trade unions to push for wage increases. Adding to the ECB's concern, money-supply growth, which the bank uses as a gauge of future inflation, accelerated to close to the fastest pace in 24 years in June.